The year of the first home buyer

Mortgage Business’ Q42008 Sentiment Survey brought home brokers’ strong expectations of this market. A majority of respondents – 52 per cent – said they expected first home buyers to be the most active market segment in the quarter ahead. The way things are shaping up, that expectation looks like being fulfilled.

Property market recoveries traditionally kick off at the bottom of the cycle and first home buyer business is expected to be particularly strong this time around thanks to the beefed-up first home owner grant (FHOG), which is due to end in June.

Since the federal government announced the FHOG boost in October last year the industry has seen a significant rise in first home buyer interest. Happily for brokers, preliminary statistics suggest this interest is also starting to translate into action.

According to the ABS, the percentage of loans taken out by first home buyers in December 2008 hit 25.4 per cent – more than a quarter of all deals. In a positive sign of things to come, government figures have also revealed that more than 5,000 first home buyers applied for the beefed-up FHOG in its first full month of operation.

Clive Kirkpatrick, head of broker business at RAMS, says current conditions are ripe for first home buyers.

“With the events of 2007 and 2008 creating some nervousness in the market... Many people were taking a ‘wait and see’ approach to buying a home,” he says.

“This led to a build up of demand and with the latest boost to the FHOG and consecutive drops in interest rates, first home buyers have been returning to the market.”

Ian Graham, the CEO of mortgage insurer QBE-LMI, agrees. He says affordability for first home buyers hasn’t looked this good in a long time.

“Affordability is probably the best it’s been in around five years,” he says.

Banking on brokers

With all that’s happened to the third-party distribution sector in the past 12 to 18 months, some brokers might be wondering whether it’s all worth it.

But brokers who have survived the turmoil are now perfectly positioned to capture the expected boom in first home buyer business.

According to the MFAA/BankWest home finance index released in January, just under half (42 per cent) of people surveyed under the age of 29 – the bulk of first home buyers – said they were likely to use a broker to secure their loan. On top of that, 31 per cent said they already planned to use a broker for their first home purchase.

One of the main reasons brokers are so popular with first home buyers is the helping hand they offer – something this target market desperately needs and might not find in the branches of their local banks or on the internet.

“First home buyers need help, and lots of it,” says lLan Market Group’s group executive director john Kolenda.

“Brokers are perfectly positioned to help them navigate their way through the borrowing process and ensure they understand and get all of their entitlements.”

Gerald Foley, managing director of National Mortgage Brokers, says brokers offer first home buyers more than just products.

“Many first home buyers are naturally unfamiliar with the whole process [of buying a home],” says Mr Foley, “not just the loan but also looking at property, how to make an offer, the steps to follow once contracts are exchanged and deposits [are] paid.”

David O’Tool of FAST says brokers can demonstrate their value in small ways.

“Even just filling out the first home owner grant application, this is something first home buyers probably need help with and something brokers can easily do.”

More than a first home

When it comes to cross-sell opportunities, first home buyers also represent a potentially lucrative market for brokers.

“With the high level of debt first home buyers are now requiring, loan protection and life insurance should always be discussed as part of the loan process,” says Mr Foley.

“Brokers are able to then generate additional income streams while providing very important information and comfort to their client.”

Mr O’Tool says brokers should also explore opportunities to help first home buyers with credit cards, bank accounts and personal finance as well as their home loan.

“Realistically almost everyone buying their first home has a car so this is even something brokers can look at,” he says. “Brokers might refinance or extend the term on their car loan to make their overall repayments more affordable [for example].”

But cross-selling is not all about generating extra revenue. Some first home buyers may not take up extra products or services, but by adding value to their first home purchase, brokers have a stronger chance of securing repeat business – and referrals from a whole new generation of borrowers.

“The relationship built by helping a first home buyer with the most important transaction of their lives so far can result in a lifetime client,” says Todd McGregor of McGregor Mortgages in WA.

“That is obviously the type of business a broker who is in this industry for the long-term would be looking for.”

Terry Christo, a broker with Loan Market Group, agrees. “First home buyers are the best business you can get,” he says.

“I can’t count how many first home buyers come back – hundreds. They’re bound to have second and even third homes and investment properties; people always buy more.”

But brokers shouldn’t rest on their laurels. Superior client service is key to securing long-term customer loyalty.

“All good mortgage brokers should help first home buyers out with referrals to good real estate agents, insurance [providers] and financial planners,” says Mr Kolenda. He also urges brokers to understand and keep up to date on all available first home buyer incentives and entitlements.

Mr Kirkpatrick says good service will go a long way. “Care about your clients. Go the extra mile to take the time to address their questions and educate them with information that is relevant to them, but of which they may be unaware.”

He adds: “It is important for brokers to be an information resource, [people] who genuinely care about the client’s experience. This is the way to their hearts – and their wallets.”

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Capturing first home buyer business

Tapping into the first home buyer market means having a strategy.

There are a number of ways brokers can generate first home buyer business. An ideal place to start is prospecting in areas where first home buyers are likely to be found, says national mortgage brokers' managing director Gerald Foley.

This includes open houses, local schools and pre-schools as well as business groups.

Building and maintaining a dedicated website is also a good way to communicate your service offering to prospective first home buyers, says FAST’s David O’Tool, while newsletters are a valuable tool for keeping front of mind with current clients.

“Many of our members are using their existing client base to reach first home buyers. For example, brokers might reach mums and dads who might then say to their kids ‘hey, it’s not a bad time to think about buying a house',” Mr O’Tool says.

It’s also an ideal time to leverage referral partnerships with real estate agents, solicitors, conveyancers and financial planners.

Todd McGregor of McGregor Mortgages in WA is one broker who recognises this.

“As an established broker with a large client base i will be relying upon referrals from clients and referral sources,” he says.

Terry Christo, a Loan Market Group broker in Queensland, agrees that the number one method for picking up first home buyer business is through generating ongoing referrals, but he is also holding regular information sessions to reach out to this segment of the market.

“We have been holding regular first home buyer nights and have two more planned for the first half of 2009. We had around 100 people attend our evening in November,” he says.

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Who are first home buyers and what do they want?

It is difficult to pigeon hole the typical first home buyer, according to RAMS’ head of broker business Clive Kirkpatrick.

He says the first home buyer category is stereotyped as 25 to 40 year olds, either couples or young families.

“However these days it is quite diverse and we see applications from people both younger and older than that, couples, singles and even friends or family buying together,” Mr Kirkpatrick says.

One thing first home buyers tend to have in common however is that they lack a strong financial base and are usually in the market for higher LVR products.

According to QBE-LMI the average size of a first home buyer loan is $316,000.

Mr kirkpatrick says simple products with competitive interest rates and low set-up fees are the most attractive to the first home buyer segment of the market.

“Other features are desirable but do affect affordability, so it’s important to realise that they may need to trade off flexibility and ‘bells and whistles’ for affordability,” he says.